Flandreau, Marc
and
Oosterlinck, Kim
2017.
Was the emergence of the international gold standard expected? Evidence from Indian Government securities.
Journal of Monetary Economics,
Vol. 59,
Issue. 7,
p.
649.

This article reassesses the importance of colonial status to investors before 1914 by means of multivariable regression analysis of the data available to contemporaries. We show that British colonies were able to borrow in London at significantly lower rates of interest than noncolonies precisely because of their colonial status, which mattered more than either gold standard adherence or the sustainability of fiscal policies. The “empire effect” was, on average, a discount of around 100 basis points, rising to around 175 basis points for the underdeveloped African and Asian colonies. Colonial status significantly reduced the default risk perceived by investors.